Europe back away from annual highs

SarahTurner

LONDON (MarketWatch) -- European shares backed away from annual highs on Friday as investors mulled details of a plan to support Greece, although Hellenic financials traded sharply higher after a separate move announced by the European Central Bank.

The Stoxx Europe 600 index (SXXP) declined 0.6% to 263.28, ending three straight days of gains that had pushed the index to a closing level not seen since Sept. 26, 2008, in the prior session.

Late Thursday, European leaders said that they would support a financial aid mechanism for Greece, if required, that will involve the International Monetary Fund. Read story on aid plan.

"I suspect that the general sense is that this is a bit of fudge settlement," said Peter Dixon, strategist at Commerzbank. "It didn't really answer the questions that need answering. It's effectively a sticking plaster."

Greek stocks advanced on Friday, with the ASE Composite index (1802216) up 4.1% at 2,147.83, as investors returned from a holiday to buy up Greek banks after news that the European Central Bank will extend looser collateral criteria into 2011. Read more on ECB collateral plans.

The euro climbed 0.6% to $1.3350, bouncing off a 10-month low against the U.S. currency, but some strategists were sceptical that gains will continue. Read more on currencies.

"This will not end the strains in the single currency area given the continued fiscal difficulties faced by other member states," said Ian Williams, strategist at Altium Securities.

The finances of Portugal, Spain, Italy and Ireland have also come under particular scrutiny due to relatively large fiscal deficits, and notable decliners on Friday included Allied Irish Banks (AIB)
AIB, -0.12%
down 5.9%, and Bank of Ireland (BIR)
IRE, -1.24%
down 4.5%.

Tracking stocks at the regional level, the U.K.'s FTSE 100 index (UKX) lost 0.4% to 5,703.02, the German DAX index (1876534) moved down 0.2% to 6,120.05 and the French CAC-40 index (PX1) declined 0.3% to 3,988.93.

Asian shares ended higher and stocks struggled to maintain early gains on Wall Street after U.S. data showed real gross domestic product increased at a 5.6% annualized pace in the fourth quarter. Read more on GDP.

Equities in both the U.S. and Europe have performed strongly in recent weeks, with the Stoxx Europe 600 benchmark setting a string of fresh annual highs.

"There's a bit of extra impetus coming back into the market. I think that partly reflects the notion that economies are beginning to get a bit of momentum," said Dixon.

Industrials, whose business prospects are closely tied to economic growth, have been among the best performers so far this year, with year-to-date gains now at 10.6%. That performance is second only to technology shares, up 16.4% since the start of the year.

Still, shares of Swedish telecom-equipment supplier Ericsson (ERICB)
ERIC, +2.31%
came under pressure in Europe on Friday, trading down 1.7%.

The firm was downgraded to sell from hold at Deutsche Bank, which said consensus expectations of a late-cycle recovery are unfounded.

Another decliner, shares of International Power (IPR) lost 3.9% while rival Scottish & Southern Energy (SSE) sank 2.1%. Both were downgraded at J.P. Morgan, with International Power cut to neutral from overweight and Scottish & Southern Energy lowered to underweight from neutral.

The broker believes that the firms face greater uncertainty marked by weak power prices, increasingly onerous environmental legislation and significant capital spending to replace aging capacity, among other factors.

U.K. hedge fund manager Man Group (EMG) lost 3.6%.

The firm is looking for possible investments, acquisitions and distribution deals in the U.S. and has spoken to GLG Partners and SAC Capital Advisors, Bloomberg reported Friday, citing people with knowledge of the discussions.

"We believe that the risk-reward is increasingly shifting to the upside," the broker said. "Our stance is informed by the low expectations for 2010, improving fundamentals, optionality on the use of excess cash and an attractive valuation."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.